Capital Budget Essay

973 words - 4 pages

Learning Team A Capital Budget Recommendation

Gerald Shaw, Kenneth Barre, Rosa Daws

ACC/543

Linda Miller

February 23, 2015

Learning Team Weekly Reflection Week 2

For this week’s assignment Learning Team A will be providing insight on the three capital budgeting techniques in relation to the Guillermo Furniture Scenario. Learning Team A after careful evaluation of the data sheets provided for Guillermo Furniture will identify the best uses for the three techniques and lastly provide a capital budget recommendation that best suites Guillermo Furniture.
Three Capital Budget Evaluation Techniques-Gerald
For ...view middle of the document...

IRR (Internal Rate of Return)
The IRR (internal rate of return) method helps to identify the discount rate for the projects NPV equaling zero (Eldenburg, PhD & Wolcott PhD, CPA, CMA, 2011). Using this method the calculation like NPV is based on discounted cash flows; it’s a difference of assuming in the NPV calculation versus locating the discount rate that gives the NPV a zero result. This method can at times be more time consuming in comparison to NPV and IRR shows that the cash inflows hold the ability to be reinvested to reach the same return rate (Eldenburg, PhD & Wolcott PhD, CPA, CMA, 2011).
Payback Method
The payback method is just that by helping to identify the time it will take to recover the initial investment (Eldenburg, PhD & Wolcott PhD, CPA, CMA, 2011). The calculation for this method an expectant of the projects cash flows staying constant in the years coming; by dividing the initial investment by the annual incremental operating cash flow (Eldenburg, PhD & Wolcott PhD, CPA, CMA, 2011). While this method is simple by nature, it also works better in partnership with either NPV or IRR to identify risks to the business.
Best use for the Different Capital Budget Techniques-Ken
To begin the analysis of the two options, a closer look at the data was necessary. Errors committed by the previous accountant were corrected, and several assumptions were also made to ensure the data was realistic. A list of corrections and assumptions is included on the attached data sheet.

Based on the assumptions, and the data provided by Guillermo’s accountant, the High-tech option required a $4,500,000 initial investment for a building and equipment, and we assumed the Broker option would require a $500,000 investment for the building. Because the available cash at the end of 2014 was less than $200,000, we assumed both investments would require financing. We assumed the 7.5% interest rate, which equals that of the current mortgage. As with previous equipment, we assumed a 10-year life and loan term for the equipment.

The analysis reported positive cash flows for the 10-year period for both options. However, a Net Present...

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evaluate and plan for your capital needs. The cash budget will help you assess whether there are periods during your operations cycle when you might need short-term borrowing. It will also help you assess any long-term borrowing needs. Basically, a cash budget is a planning tool for management decisions.
how to create a cash budget
There are three main components necessary for creating a cash budget.
• Time period • Desired cash position

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better use of the surplus funds might be a stock repurchase.
B. Policy 4, based on the regular dividend with an extra, seems most logical. Implemented properly, it
would lead to the correct capital budget and the correct financing of that budget, and it would give correct signals to investors.
C. No. As a regular dividend it should be lower than $9 Million.
Problem 19-6
| | | | | |
A | | | alternative 1 | alternative 2

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suspense almost half of capital projects and research in order to balance their institutions’ budget. Loss of enrollment and endowment in higher education increases the financial needs of university in order to afford their expenses and keep operation going. Below are the Decline in Balance Sheet Strength and the Percentage Change in State Fiscal Support for Higher Education, according to Moody Investor’s Report (Figure 1 and Figure 2

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Capital Budget Recommendation for Guillermo
Lynda D. Keller
ACC543
June 23, 2014
Richard Collins
Capital Budget Recommendation for Guillermo
The first and most necessary goal of any organization is to maximize shareholder wealth. Maximizing shareholder wealth includes identifying and analyzing future projects that can provide value. Typically in a risk-return trade off the greater the risk, the higher the return. According to Krenz and

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into the business?
Are you cash flow positive in all months?
If not, how will you cover the short fall?
Task: Use the following Cash Budget template to complete a Budget for a 6 or 12 months
period
January
February
March
April
May
June
$
$
$
$
$
$
Cash Inflows
Share capital
Sales receipts
Total Cash Inflows
Cash Outflows
Material
Wages
Tax
Overhead
Non-current assets
Total Cash Outflows
Net Cash Flow
Balance brought
forward
Balance carried
forward
See Chapter 19 in Bazley and Hancock for an example.

532 words - 3 pages
Vershire Company, a packaging company that manufactures aluminium beverage cans, is known as one of the largest in its industry in the United States. It has several divisions one of them being the Aluminum Can division wherein two line managers report directly to the Division General Manager. Divisions were almost autonomous in conducting business except for raising capital and labor relations, both functions being done at the head office to

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.
b. Domestic risk
4. It is the cost of capital that is expected to raise funds to finance a capital budget or investment proposal.
a. Future cost
5. This concept is helpful in formulating a sound & economical capital structure for a firm.
c. Designing optimal corporate capital structure
6. It is the minimum required rate of return needed to justify the use of capital.
b. Firms point
7. It arises when there is a

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next three budget years:
The company expects to recover from the current year sales decline over the next 3 years. Current sales forecasts by year are: Year 9 10 11 Sales in Units 3510 3660 3800
Working Capital and Cash Flow
Operating Cycle factors: • Competition Bikes, Inc. sends the distributor a monthly invoice for all raw materials ordered with terms of net/30 days. • Inventory is paid for in the month following production. All

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relative price of cloth and the economy’s cloth exports. Eq. 4.7 is therefore the budget constraint
BC slope: Consuming one less unit of cloth gives you Pc extra which can buy you Pc/Pf units of food.
Before trade if an economy produces at a point like 2, after trade it can achieve anything within the shaded region. The set of feasible points are then where the BC is in the shaded area.
BC slope: Consuming one less unit of cloth gives you

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income in order to cope with change and making sure that working capital is available and money set aside for emergencies is all part of the balancing exercise.
Cost managed to budget
There are two types of costs:
Fixed costs are cost, which does not change regardless of the number of goods that are produced by, or services are offered at Tesco. These costs include rent, insurance, salaries. Whether Tesco makes 100 or 10,000 products

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variable and mixed costs.
4. Using the formula for the variable portion of the costs, prepare a budget showing what costs will be incurred at various points throughout the relevant range.
Due to uncertainties inherent in planning, three forecasts may be projected: one at an optimistic level, one at a pessimistic or extremely conservative level, and one at a balanced, in-between level.
Capital Expenditure Budget
The capital expenditure budget is